IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "SMC" NEW DELHI
BEFORE SHRI N.K. SAINI: ACCOUNTANT MEMBER
ITA no. 1497/Del/2015
Asstt. Yrs: 2010-11
Luxmi Rice Mills, Vs. Income-tax Officer,
C/o Dharam Pal Gupta, Adv. Ward-4, Karnal.
7-Railway Road, Karnal.
PAN: AAAFL 2868 D
( Appellant ) (Respondent)
Appellant by : Shri Permil Goel Adv.
Respondent by : Shri K.K. Jaiswal, Sr. DR
Date of hearing : 19/08/2015.
Date of order : 29/10/2015.
ORDER
This is an appeal by the assessee against the order dated 13-03-2014
of ld. CIT(Appeals)-Karnal. Only effective ground raised in this appeal
reads as under:
"AO erred in law & fact in disallowing rent Rs. 5,16,808/- to
Warehouse + contract payment of Rs. 2,37,757/- to NBHC paid
during year by applying section 40(a)(ia), which is applicable
only to amounts payable as on 31/3/2010 & 40(a)(ia) is not
applicable to amounts paid during the year."
2. Facts of the case, in brief, are that assessee was engaged in the
manufacturing of rice and its bye-products and filed the return of income on
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23-9-2010, declaring an income of Rs. 1,04,790/-, which was processed u/s
143(1) of the Income-tax Act, 1961 (hereinafter referred to as the "Act" in
short), on 22-4-2011. Later on, the case was selected for scrutiny. During the
course of assessment proceedings the AO noticed that the assessee had
debited warehouse paddy rent to the tune of Rs. 5,76,808/-, which comprised
of Rs. 60,000/- paid to M/s Hanuman Rice Mills on 28-11-2009 and Rs.
5,16,808/- paid to Haryana Warehousing Corporation and Central
Warehousing Corporation. The AO was of the view that the assessee was
under obligation to deduct the tax on the rent payment of Rs. 5,16,808/- u/s
194-I of the Act, which had not been done by the assessee. He asked the
assessee to explain as to why the TDS on rent payment had not been
deducted. The assessee submitted that since the rent had been paid to the
State Government and Central Government, no TDS was deductible. The
assessee also furnished the copy of Circular no. 699 dated 30-1-1995 issued
by the CBDT. The AO did not find merit in the submissions of the assessee
and made the addition of Rs. 5,16,808/-. The AO also noticed that the
assessee had claimed NBHC bank guard pay to the tune of Rs. 2,37,757/-
and no TDS was deducted as per the provisions of section 194C of the Act.
The said amount was also disallowed u/s 40a(ia) of the Act and added to the
income of the assessee.
3. Being aggrieved, the assessee carried the matter to the ld. CIT(A) and
furnished the written submissions, which read as under:
"The Ld.ITO made an addition of Rs.516808/ - which was rent
paid for Godowns as warehousing charges. The godowns are
owned and controlled exclusively by the Sate Govt. and Central
Govt. in the interest of the nation. TDS as per law was not
deducted on such payments of rent. The appellant submitted
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letters, circulars and certificate from the CWC and HWC and a
certificate from. the assessee were filed to prove that TDS is not
required to be deducted from the state govt. and the central
govt. corporations."
4. The assessee also furnished the copy of the Circular no. 699 dated 30-
1-1995 issued by the CBDT.
5. The ld. CIT(A) asked the assessee to produce evidence that the
Haryana Warehousing Corporation and Central Warehousing Corporation
were entities, which were government and statutory authorities or local
authorities covered u/s 10(20) or 10(20A) of the Act.
6. In response, the assessee furnished the written submissions, which
read as under:
"That for non deduction of TDS from rent paid to Central
Warehousing Corporation of Rs. 206452/- and Rs.310356/- to
State Warehousing Corporation the expenses have been
disallowed and added as Income.
The bare reading of Section 194-I is clear- The payee is the
Government and under this bonafide impression the assessee
did not deduct TDS.
Similarly TDS on payment of Rs.237757/- to NBHC a banking
concern was not required as per our bonafide and common
man feelings. This addition is also wrong.
In our opinion these are directly Government concerns and
cannot be called local authorities as no local or Authority is
involved.
As regards obtaining any certificates required under clause 20
or 20A of Section 10 we could not obtain such certificate of Tax
exemption status of these Govt. Deptt. and these days no officer
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likes to write any such letter or certificate. The same can be
obtained at your honours level."
7. Ld. CIT(A) after considering the submissions of the assessee
observed that the assessee failed to produce any document in support of its
contention that it is covered u/s 10(20) or 10(20A) of the Act, on the basis
of which it is claiming exemption from the provisions of section 194-I of the
Act. Accordingly, the disallowance of Rs. 5,16,808/-, made by the AO u/s
40a(ia) of the Act, was upheld.
8. Ld. CIT(A) also observed that the AO provided numerous
opportunities to the assessee during the course of assessment proceedings.
He, therefore, dismissed this contention of the assessee that the AO had
passed the order in hurry and without giving proper opportunity.
9. As regards to another disallowance of Rs. 2,37,757/-, the contention
of the assessee before the ld. CIT(A) was as under:
"Another addition of Rs.237757/- made u/s 194-C of the Act by
disallowing u/ s 40 a(ia) of the Act, paid to NBHC for guarding
and supervisory work. The contract is effected between the
bank and NBHC. The bank also makes certain payments out of
the interest earned to the NBHC(National Bulk Handling
Corporation)The assessee has to pay as per bank directions.
As there no contract between the appellant and NBHC no TDS
was made. Further payment of salary to two guards and
supervisor are finalized by the bank and guards are also
changed from time to time thus TDS was not required."
10. The ld. CIT(A), after considering the submissions of the assessee,
observed that if the contention of the assessee was considered to be true that
the contract was between the bank and NBHC and that the payment on
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guards and supervisors were finalized by the bank and the guards were
changed from time to time by the bank, then why the assessee was paying
money to NBHC bank guard. Accordingly, the contention of the assessee
was considered to be futile and baseless. According to ld. CIT(A), the
assessee was liable to deduct TDS u/s 194C of the Act, as the payment was
contractual in nature. He, therefore, held that the AO rightly made the
disallowance u/s 40a(ia) of the Act. Now, the assessee is in appeal.
11. Ld. counsel for the assessee reiterated the submissions made before
the authorities below and further submitted that the assessee paid warehouse
rent to Central Warehousing Corporation and Haryana Warehousing
Corporation and it was under a bonafide belief that no tax was to be
deducted at source u/s 194-I on rent paid to the government of India/
Haryana, amounting to Rs. 2,06,452/- and Rs. 3,10,356/- respectively and
similarly, the assessee was also under bonafide belief that no tax was to be
deducted at source u/s 194C on guards' salary reimbursed to bank
amounting to Rs. 2,37,757/-. It was further stated that in the tax audit report
also in form no. 3CB in part-B at sl. No. 27(a), the auditor had mentioned
"Yes" in response to the query of TDS compliance and had also mentioned
in clause (b) "Nil" in response to query of TDS non-compliance. It was
further submitted that nothing was payable as on 31st March, therefore,
disallowance u/s 40a(ia), made by the AO, was not justified. Reliance was
placed on the decision of the ITAT Visakhapatnam, Special Bench in the
case of Merilyn Shipping & Transport Vs. JCIT and the judgment of the
Hon'ble Allahabad High court in the case of CIT vs. Vector Shipping
Services Pvt. Ltd. 357 ITR 642. Reliance was also placed on the following
case laws:
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- Hon'ble Delhi High Court in the case of CIT vs. M/s DLF
Commercial Project Corporation (ITA nos. 627/2012 &
507/2013 dated 15-7-2015);
- ITAT Mumbai Bench `J' in the case of Shri Jitendra
Mansukhlal Shah Vs. DCIT (ITA nos. 2293 & 2294/Mum/2013
­order dated 4-3-2015).
12. In his rival submissions, ld. Sr. DR reiterated the observations made
by the authorities below and further submitted that `payable' does not mean
payable at the end of the year and that the amount can be payable on day to
day basis. He strongly supported the impugned order passed by the ld.
CIT(A).
13. I have considered the submissions of both the parties and carefully
gone through the material available on the record. In the present case, it is an
admitted fact that the assessee reimbursed the salary to the guards of the
bank and there was no contract in between the assessee and NBHC. Guards
were deputed by the bank, but the expenses were reimbursed by the
assessee. On a similar issue, the Hon'ble Delhi High Court in the case of
CIT Vs. DLF Commercial Project Corporation in ITA 627/2012 and
507/2013 vide order dated 15-7-2015, while deciding the issue relating to
reimbursement of service charges vis a vis non-deduction of TDS, observed
in paras 17 to 21 as under:
"17. The AO disallowed the amount of Rs. 19,69,83,236/- as
deduction for the reason that the assessee deducted TDS only on the
service charges paid by it to M/s DLF Land Ltd. According to the
AO, TDS ought to have been deducted under the amount paid by the
assessee towards reimbursement expenses to M/s DLF Land Ltd.
This Court holds that the CIT(A) and the ITAT rightly set aside the
AO's order, ruling that the assessee was not required to deduct TDS
on reimbursement expenses paid to M/s DLF Land Ltd.
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18. The assessee has correctly relied upon this Court's ruling in
Industrial Engineering Projects Pvt. Ltd., (supra). A Division Bench
of this Court in that case specifically held that "reimbursement of
expenses can, under no circumstances, be regarded as revenue
receipt" and therefore, it is not liable to income tax. The Court
relied upon the Supreme Court's decision in CIT v. Tejaji Farasram
Kharawalla Ltd., [1968] 67 ITR 95 (SC), where the Court had held
that it is only the amount that exceeds the expenditure incurred by
the agent that would be liable to tax. More recently, this Court in
Fortis Health Care Ltd. (supra) has also held that amount received
towards reimbursement of expenses is not taxable under the Act.
19. In the instant case, it is undisputed that M/s DLF Land Ltd. had
deducted TDS on the payments made by it under various heads on
behalf of the assessee. Further, it is also not disputed that the
assessee deducted TDS on the service charge paid by it to M/s DLF
Land Ltd. on the reimbursement expenses. In such circumstances,
this Court holds that the entire amount paid by the assessee to M/s
DLF Land Ltd. is entitled to deduction as expenditure.
20. In arriving at the aforesaid conclusion, this Court derives
support from the Gujarat High Court's decision in Commissioenr of
Income Tax-III v. Gujarat Narmada Valley Fertilizers Co. Ltd. (in
Tax Appeal no. 315 of 2013, decided on 25-06-2013), where the
facts were similar to those in the present case. The Court therein
rejected the revenue's contention that non deduction of TDS on
reimbursement expenses would lead to disallowance of such
reimbursement expenditure. The Court noted that the payee therein
had already deducted tax on the various payments made by it to
third parties (such as towards transport charges and other charges).
Since the payments made by the assessee therein were only for the
reimbursement of expenses incurred by the payee on behalf of the
assessee, the Court held that no TDS was required to be deducted by
the assessee. A special leave petition preferred by the revenue
against the High Court's decision was dismissed by the Supreme
Court on 17.01.2014 (in SLC CC No. 175 of 2014). This court is
also supported in its reasoning by the text of Section 194C (TDS for
"work") and Section 194J (TDS of income from "professional
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services" - the latter expression defined expansively by Section 194J
(3) Explanation (a)). Neither provision obliges the person making
the payment to deduct anything from contractual payments such as
those made for reimbursement of expenses, other than what is
defined as "income". The law thus obliges only amounts which fulfill
the character of "income" to be subject to TDS in such cases; for
other payments towards expenses, the deduction to those entitled (to
be made by the payeee) the obligation to carry out TDS is upon the
recipient or payee of the amounts.
21. The facts of this case are identical to those in Gujarat Narmada
Valley (supra) and for the reasons stated above, this Court does not
find any compelling ground to arrive at a different conclusion. Thus,
the ITAT's ruling in this regard is upheld.
14. In the present case also, the assessee reimbursed the expenses to the
bank and the bank ought to have deducted the TDS when there was a
contract in between the bank and the NBHC, but there was no contract
between the assessee and NBHC. Therefore, provisions of section 40a(ia)
were wrongly applied by the ld. AO, as the assessee was not required to
deduct TDS u/s 194C of the Act on the reimbursement of the expenses. In
that view of the matter, addition on account of disallowance of Rs.
2,37,757/- is deleted.
15. As regards to the other issue relating to the payment of rent paid to the
warehousing Corporation, the ld. CIT(A) categorically observed that the
assessee was asked to produce evidence that the Haryana Warehousing
Corporation and Central Warehousing Corporation are entities which are
government and statutory authorities or local authorities covered u/s 10(20)
or 10(20A) of the Act, but the assessee was not in a position to produce any
evidence.
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16. It is well settled that when any assessee claims any benefit or
exemption under any provision of the statute, it is for the assessee to produce
the relevant documents or evidence, on the basis of which it is claiming such
a benefit or exemption. However, in the present case, it is noticed that the
AO in the assessment order nowhere stated that he asked the assessee to
produce such an evidence. I, therefore, deem it appropriate to set aside this
issue back to the file of AO, to be decided afresh in accordance with law,
after providing due and reasonable opportunity of being heard to the
assessee.
17. In the result, appeal of the assessee is partly allowed for statistical
purposes.
Order pronounced in open court on 29/10/2015.
Sd/-
(N.K. SAINI)
ACCOUNTANT MEMBER
Dated: 29/10/2015.
*MP*
Copy of order to:
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR, ITAT, New Delhi.
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-+ Date Initial
1. Draft dictated on 28-102015 PS
2. Draft placed before author 29 .10.2015 PS
3. Draft proposed & placed before the second JM/AM
member
4. Draft discussed/approved by Second Member. JM/AM
5. Approved Draft comes to the Sr.PS/PS PS/PS
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk PS
8. Date on which file goes to the AR
9. Date on which file goes to the Head Clerk.
10. Date of dispatch of Order.